LONG TERM CARE INSURANCE
Long Term Care Insurance (LTC) was developed to help offset the potentially high cost of long-term care services, something many of us may experience. Long-term care can be very expensive. Costs can quickly diminish the best-laid retirement and financial plans.
Like life insurance or an annuity, LTC Insurance plays an important role in your overall financial plan. Long-term care insurance can act as a shield that helps protect assets and provides benefit dollars that may be used during a time of long-term care need.
By purchasing LTC Insurance, you are transferring the risk of potential costs such as hospital stays and home nursing care to an insurer and acting to help protect your assets and your retirement plan.
LTC Insurance also helps protect your family by helping to relieve them from acting as the primary caregiver. With long-term care insurance in place, your family can focus on spending quality time with you, knowing that your long-term care insurance is helping to cover the cost of care that you may need.
With the rising costs of health care, LTC Insurance premiums are increasing as well. Here are some tips we offer our clients to find a policy that fits their needs:
- Benefit period. The most significant cost-saving step you can take is to not purchase a lifetime policy. Unless you have a family history of a chronic illness, you aren't likely to need coverage for more than five years. In fact a new study from the American Association of Long-term Care Insurance shows that a three-year benefit policy is sufficient for most people. According to the study of in-force long-term care policies, only 8 percent of people needed coverage for more than three years. By purchasing coverage for three, four, or five years instead of a lifetime, you can save thousands of dollars in premiums. If you do have a history of a chronic disease in your family, you may want to purchase coverage for 10 years, which would still be less than purchasing a lifetime policy.
- Buy younger. LTC insurance premiums rise as you age, so the younger you buy, the cheaper your premiums. Be careful, however, because insurance premiums can, and often do, increase considerably from your initial purchase price. Even if you have a policy that is "guaranteed renewable," your premiums can still increase.
- Shared care policy. If both you and your spouse are purchasing LTC Insurance, a shared care policy might be able to give you more coverage for less money. With a shared care policy, you buy a pool of benefits that you can split between you and your spouse. For example, if you buy a five-year policy, you will have a total of 10 years between you and your spouse. If your spouse uses two years of the policy, you will have eight years. A shared care policy may cost more than separate policies with the same benefit period, but it will allow you to buy a shorter policy, knowing that you have a pool of benefits to work with.
- Longer elimination period. Most policies have a waiting period before coverage begins, typically 30-90 days. The longer you make this waiting period, the cheaper your premiums. Keep in mind, however, that you will have to pay for your care out of pocket until the waiting period is over and the insurance begins its coverage.
- Reduce the daily benefit. Instead of purchasing the maximum daily benefit you might need in a nursing home, you can consider paying for a portion of the daily benefit yourself. You can then insure for the maximum daily benefit minus the amount you plan to pay. A lower daily benefit will mean lower premiums.
- Inflation protection. Inflation protection increases the value of your benefit to keep up with inflation and is almost always recommended. However, you can save on premiums by which method of protection you choose: compound-interest increases or simple-interest increases. If you are purchasing a LTC policy and are younger than age 62 or 63, you will need to purchase compound inflation protection. This can, however, more than double your premium. If you purchase a policy after age 62 or 63, some experts believe that simple inflation increases should be enough, and you will save on premium costs.
You should also remember that your premiums may be tax-deductible. Ask your CPA if you are eligible.